Whether you are just starting a software as a service (SaaS) business, or have been in the game for years, it’s always beneficial to understand the primary pricing strategies for your products. In truth, it’s not uncommon for a business to realize they have been over or undercharging for their products. With this in mind, below we’re uncovering pricing strategies that are working in an effort to help you develop your own pricing model.
What is a Pricing Strategy?
Just like it sounds, a pricing strategy is an approach for how you will price your SaaS product. In other words, it’s your chosen policy for how much your customer will be charged to receive your product. The best plan of action in terms of pricing is to determine how much your customer is willing to pay, while also ensuring your business will turn a profit.
Many, if not most SaaS companies opt for a subscription pricing model that yields a constant stream of revenue for the business. It’s important to remember that when it comes to pricing strategies, you must keep in mind the value your product is offering, and find that perfect sweet spot that will yield a healthy profit margin while keeping your customer happy. After all, if they feel you are overcharging, they are likely to seek out a competitor.
Different Pricing Strategies Explained
Now that you have a brief overview of the goals for a good pricing strategy, let’s explore different pricing strategies to help you determine the best one for your SaaS business.
1. Penetration Pricing
The goal of penetration pricing is to enter the market with a low price in an effort to get the attention of customers, and convince them to leave the higher priced competition. The problem with pricing strategies like this however, is that over the long term they are not sustainable. Eventually, the business will have little to no choice but to raise their prices if they hope to be profitable.
2. Skimming Pricing
In stark contrast with penetration pricing, this strategy centers on entering the market at a high price, and then later tapers the pricing down as the product becomes less popular. This strategy is quite common with theme parks. When they are at the highest of their popularity, the price goes up, and suddenly, as crowds thin out, ticket prices go down to bring customers back. – Read more
Learn More About SiteLock